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Cash On Hand, Small Firms Get Ready to Spend: Study

Thursday, 15 Mar 2012 | 12:03 PM ET

The discipline mid-size companies have developed since the financial crisis to maintain and grow cash reserves bodes well for future growth. That’s one takeaway from a new American Express/CFO report, which surveyed 325 senior finance executives about their top financial challenges.

“The stop-and-hold mentality of the recession has loosened up,” said Robert Clarkson, vp and general manager for American Express Global Corporate Payments. “Spending is moving toward growth-oriented goals, such as improvement in systems, software, anything that will help grow the business.”

Hiring is also on that list, he said. “Certainly, hiring is a growth-oriented investment, as well. Many of the customers I’m dealing with are talking about bringing in people with certain expertise.”

The results of this annual survey – this is the tenth year – point to changes in how smaller businesses are working to increase working capital.

“The financial crisis really shocked a lot of companies that weren’t prepared for a downturn,” said Clarkson. “What we are seeing now is a drive to increase working capital and make more efficient payments to vendors; it has been top of mind for mid-market clients over the last 12 to 18 months.”

A full 85 percent of survey respondents said their companies are more financially disciplined in the aftermath of the downturn. And that puts them in a better position when negotiating with larger clients for better payment terms.

“One of the biggest challenges for smaller firms is in their dealings with large organizations,” said Clarkson. But focusing on financial discipline, it puts them on a more even playing field with larger customers. They can sell more effectively and efficiently.” Translation: When larger firms play hardball with payment terms, smaller companies have enough working capital to wait out the payments.

And that discipline transcends the finance department. “There’s more due diligence,” he noted. “A lot of our clients are seeing where additional layers of sign-off for investment to occur can be advantageous. Now, purchasing, operations and sales are aligned. If you’re going to increase working capital, you need the entire company behind you.”

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